Why sustainable businesses are more attractive to buyers

Integrate environmental, social and governance (ESG) considerations into your business practices and it could pay off when you come to sell

If you’re considering selling your business, potential buyers are increasingly interested in companies that can prove they’re run with sustainability in mind.

This means that building a sustainable business is not only the right thing to do for the planet but is also likely to increase the asking price, should you come to a sale.

Two-thirds (66%) of private-equity investors rank value creation as one of the top-three drivers of responsible investing, according to PwC’s Global Private Equity Responsible Investment Survey 2021.1 In other words, the funds that often buy fast-growing small businesses view environmental, social and governance (ESG) factors as a significant value creator. It follows that by growing your business with that in mind, you can create more value.

Here are five reasons a sustainable business is likely to attract more attention when it comes to a sale.

They’re more profitable

Lower running costs and greater customer appeal (see below) mean that investing in sustainability is money well spent.

Integrating ESG considerations into business practices often leads to greater efficiencies through improved resource-management policies. These can reduce and eliminate waste, create more efficient supply chains and cultivate an innovative culture, according to a 2021 report by EY.2

The report found that across most industries, sustainable businesses outperformed their peers in terms of gross profit, EBITDA (earnings before interest, taxes, depreciation and amortisation) and net profit.

“If you can prove you live and breathe sustainability, if you’re true to that purpose, it will create and add value,” says Martin Brown, our Chief Executive. “At the SME level, it’s got to be very tangible, in that it’s got to drive sales up and costs down, and bring value into the business.”

Customers love it

With each passing year, more consumers are taking the ethical credentials of a company into account when making purchasing choices. If sustainability is part of your business model, then you have a good chance of increasing sales and being more attractive to a potential buyer.

Iain Fraser-Jones is founder and Managing Director of Greenzest Limited, a cleaning company set up in the belief that it’s possible to provide a cleaning service with sustainability, honesty and integrity at its core. He says Greenzest’s commitment to sustainability gave the business higher customer-retention rates than peers in the same sector, while 99% of new work came through referral and recommendation.

“The benefits to the customer are value for money, but also that they see the sustainability that we stand for, which transfers to what they do as well,” he explains. “We’re engaging with our customers to help them be more sustainable.”

Regulation is coming

It’s beyond doubt that the years ahead will see increased sustainability regulation for businesses. From carbon taxes to fines for overstating green claims, greater scrutiny is a certainty and those companies that aren’t ready will suffer. If you’re prepared for what’s coming, you’re likely to be ahead of your competitors.

“You’re starting to see regulations at PLC level, which is beginning to cascade down the supply chain into the SME market,” says Martin.

It costs less than you think

“There’s always a misconception that to be sustainable costs a little bit more, when actually it doesn’t,” says Iain.

Greenzest, which is a carbon-neutral business, pays its staff the real living wage, creating greater levels of retention, meaning it spends less on training and recruitment. With consistent staffing, Greenzest can engage with workers on its sustainability plans to a greater extent than businesses with a high labour turnover.

“Companies that have embraced the ESG agenda are valued if there was ever to be any sale,” says Iain, who has no immediate plans to sell Greenzest. “It vindicates everything we’re doing. Obviously, when you start a company, you don’t set out to sell it straight away, but in terms of adding value, it’s great for the overall perception of our business.”

Never too late

It can seem daunting, but it’s never too late to begin your sustainability (and wider ESG) journey. In fact, doing so will probably put you in front of much of your competition.

“If you’re doing it in the SME market at this stage, you’re going to be a trailblazer,” says Martin. “The market is just getting familiar with the idea, so it’s definitely not too late at the moment, but it is a case of now rather than later.”

Seek advice

Get in touch to discuss your ESG journey and making it a part of your business planning.